This can’t be. Conservatives say reducing government will save money. There must be a mistake.
Despite a widespread belief that contracting out services to the private sector saves the federal government money, a new study suggests just the opposite — that the government actually pays more when it farms out work.
The study found that in 33 of 35 occupations, the government actually paid billions of dollars more to hire contractors than it would have cost government employees to perform comparable services. On average, the study found that contractors charged the federal government more than twice the amount it pays federal workers.
The study was conducted by the Project on Government Oversight, a nonprofit Washington group. The federal government spends about $320 billion a year on contracts for services. The POGO study looked at a subset of those contracts.
The study comes after months of criticism, mostly by Republicans, about what they see as the high cost of salaries and benefits for federal workers.
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But POGO said its study did not just compare the salaries of the two sectors; instead it focused on what the government actually pays contractors to perform services versus how much it would cost to have that work done by in-house staff members.
As someone who has been a private contractor working with government employees, I wonder if the assumption was made in the study that government employees could perform the same amount of work in the same amount of time as the private contractors. From my experience, that assumption would not be true in many cases.
You save money by reducing government – by NOT actually spending the money.
In other words, you don’t employ government workers to do the work, you don’t hire private contractors either — you reduce government by NOT doing the work.
We have Federal government employees who check to make sure magicians have a license for the bunny rabbits in their acts. It doesn’t make sense (and won’t save any money) by using private contractors. We save money by not requiring Federal bunny inspectors.
When a conservative (not to be confused with a Republican or Tea Partier) says “let the private sector do it”, it means, “if the private sector wants this job done, then let them do it, and let them pay for it.”
Well, isn’t this common fact. I mean, here in the UK we have PFI (private finance initiatives) and its how, in the good times, we build amazing new hospitals and other ‘government owned’ properties. Only problem is, they are massively more expensive than there counterparts (for example, the PFIs usually mean giving the building to a private company, them owning it for 21ish years and after the government has paid for the building anywhere, paying rent to stay in the building.)
And for a side note, the PFIs aren’t included in the debt figures of the country. If you include this (as they should be, really), the UK is the most indebted nations in the EU.
I’ve seen this photo before and another like it where the center line goes around a dead skunk.
I have worked for public and private employers and I believe the bigger the group of employees the less efficient the organization is.
I do not see a link to the actual study on the NYT article, only a link to the ‘Project on Government Oversight’ page. Still, assuming the NYT is accurately reporting the study in context and it is a completely unbiased story (yeah right), I can say as somone completely pro business free enterprise:
Well, Duh! As long is the government is the one paying, it is going to overspend. These are the 3 cases from best to worst, and coincidentally, from cheapest to most expensive.
1. Individuals or businesses making choices about what to buy or who to hire.
2. Government hiring its own employee, or buying something.
3. Government paying for private contractors, which will usually be based on favors, fraud, kickbacks, and corruption. (Blackwater,GE, Solyndra)
Do you really think that Obama’s decision to practically shut down NASA is going to save money and yield positive results?
The previous posters have all made good points.
I’m also wondering how much the bill for private contracts may be padded by rules about paying union scale and minorities, etc.
Sure you need some rules but normally the fed gov. over does rules.
#2
> You save money by reducing government – by NOT actually spending the money.
Fair point, but you have to agree some things the government *must* do. We gotta be careful with assumptions. Assumption one (as per the article) is that private enterprise is always more efficient. False. Assumption two is that most of what the government does is wasteful. The magician bunny license example is funny, but there are plenty of necessary things government must do: transportation, national security, immigration, building inspections, preserving natural resources, law enforcement, etc.
The problem is that time after time after time, contracts are given out to “friends and buddies” instead of the best performer. Ask Jefferson County in Alabama about their sewer debt to see just how bad a buddy getting contracts can get.
Of course contractors cost more. There has to be enough for the companies to give kick-backs in the form of campaign contributions. Just like the Dem’s do with NGO’s.
While in the military I had a compressor that needed repair. The government employee came, looked at it, and refused to work on it!
I couldn’t believe he could get away with that BS, but there were no repercussions at all.
I ended up spending 5 cents for a pair of O rings and fixed it my self.
Fire 90% of the employees and hire contractors for twice the pay. We will come out ahead in the long run.
To help with our budget we need to cut dead wood and dispose of it!
Employees vs Contractors, always a touchy subject. I worked for a major school district here in California and I and my Union fought this battle first hand. The contractor can usually cost less, but you usually don’t get the same or better service. I was a tech, we would try to recover data, the contractor wiped the Hard Drive. We would try to repair the laptop using recovered parts, the contractor would declare it “Beyond Economic Repair.” In the end, even though our service was better and we saved the district in replacement hardware costs, we lost the fight…
Hospitals in the UK have been specifically told to cut down on hiring in doctors, nurses and so on. They should use employees wherever possible because it is cheaper. How?
You pay a nurse X for a shift. On top of that there are all the other costs and taxes.
Hiring in an identically skilled agency nurse they also will get paid about X. All other costs are either still paid by the hospital or paid by the agency and immediately charged back plus costs. Then the agency has its profit to add in as well…
The other big difference is efficiency, wherever you work, you should become more useful after you have been around for a while. Agency staff may not be around for long enough for that to occur.
In # 4 Micromike said: I believe the bigger the group of employees the less efficient the organization is.
How about the private/public partnership of ARPA and BBN which gave us packet switching, the internet, email, (see where I’m headed here?)
Ma Bell was telling the DOD it was impossible. BBN said, let try this approach…
With Ma Bell, you’d still be picking up the bakelite horn, turning the hand crank and asking Mabel to connect you.
How about the private/public partnership of ISPs freed from some DARPA restrictions about making money off the internet and CERN which kicked off the World Wide Web? (1995 people! 1995 is when the Web officially took off out of the university labs.)
Things have changed A LOT since 1995. Its upset a lot of people and tipped over a lot apple carts.
Privately owned corporations only move when they absolutely have to … because its risky.
What the Republicans are pushing is anathema to change.
As a small biz owner that has done work for the VA, I can tell you why. The Feds jack their contractors around like crazy, require us to comply with specs that are antiquated and ridiculous. Then I usually spend months waiting for my invoices to clear red tape of being shuffled from one desk to another. I stopped doing federal work because it was not worth the hassle. I would only do it again if I were paid 2x normal rates.
Well duh.
Of course the private companies are going to cost more.
They know they can fleece the government and get away with it.
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DUH! What else is new?
Whenever a fat American company gets a government contract you can almost hear everyone’s excitement where they’re virtually saying, “yippee! 362 vacation days a year!”
OK, but seriously. The problem isn’t necessarily with “the government” – it’s with us! Think about it. Our very culture seems to be bent on what we can get away with. I bet even you have probably tried to figure out a way to get around some sort of government “system” at least once. I know I did the first time I got a traffic ticket. So why should “the government” be any different? After all, they’re only following our lead.
Therefore, is it any wonder that most American companies who’ve been getting screwed by the very government that allows them to do business just might want to “give it back” to the government even a just little?
And sure, the government might be able to do everything cheaper if they did it themselves too. But then again, you you really think that’s the answer either?! Think again! if you said yes.
What we need is a cultural change where we’re not always on guard against some low-life trying to rob us all the time. It’s been going on for far too long and it needs to stop! But before you go pointing fingers at the dumb old government maybe you might want to try looking in a mirror – particularly if you’re a professional American business executive!
The difference? When private companies fail, they die off and another company will take it’s place. When government fails, politicians just prop them up with more tax payer dollars, and an overpriced and inefficient system keeps on going.
Cost is moved, not eliminated in privatisation. First lesson in MBA college, externalise cost and risk.
Once it is discovered that you can vote yourself money from the public till be not surprised that you do.
As a business owner that has done some work for the Veteran’s Administration in the past, I will tell you that they know how to jack their private contractors around with a dizzying mess of regulations, specifications, and tortuous requirements for somethings that should be SO SIMPLE! We waited months on them for answers and reviews, but were asked to turn on a dime in return.
Then when it came time to be paid for our engineering services we waited months and months with no response other than “it’s in process” and seemed to be stuck in eternal limbo. When we finally were paid, it was only 150 days past due. I dont care if I ever do federal work again and would only do it if I were paid 2x my normal fees just to put up with the crap.
This does not surprise me one bit. When you hire an outside contractor, there is a lengthy and extremely costly process to properly identify and select the “right” contractor. It is not unusual for the contractor to bid below the actual cost, which results in overun and actually increases what it would have cost if the job was done correctly.
There are honest contractors out there and there are honest government employees out there — but on the balance I want to build a government where there is in-house knowledge built over time to hold the braintrust and carry that knowledge for the best public works.
Well duh. Most of the conservative agenda is not evidence based, so why should we be surprised?
There is no way to pay a competitive wage AND a hookup for the contracting company for cheaper.
Whenever they do cost competition between fed workers and contractors the feds tend to win.
Follow the money. The people saying it’s better for the government to hire outside contractors are the ones getting rich on government contracts.
Duh.
Lots of good examples here.
Here’s mine, as a contractor to the Govt. of the US Virgin Islands, my company was responsible for supplying ALL computer equipment to any gov’t agency. They would order 3 – 400 computers at a time, and we would give them the best quote.
It took them 6 months to appropriate the funds. By that time the price of each unit had gone down by 2 – $300.00. Being an HONEST company, (as well as a taxpayer), we would attempt to re submit a quote, but that was impossible. Once the paperwork ground through the broken “system”, it was impossible to get them to resubmit.
After a couple of years of this bullshit, we just kept our mouths shut, took the money, and built our houses with it.
I saw so much corruption and waste in this gov’t. it was sickening.
Private vs. public.
Profit vs service.
The assumption was that private has better resource management practices then the government does, in part due to a market disciplined environment privates live in. Unfortunately government contracts are typically immune to such market disciplines, i.e, competition.
The out-sourcing of the IRAQ war to HALLIBURTON, Blackwater (with government trained special forces like Navy Seals) shows just how unproductive and expensive outsourcing is; how poor the service delivered is, and;how poor the government oversight is!
The report is nothing more then one big Homer Simpson DUH!
If you believe your local MBA’s (Masters of Business Admin), out sourcing is always cost efficient! By the way, GWB has a Harvard MBA!
The fact that contractors would agree to a set amount for a service does save money. You have to factor in insurance costs, retirement and such with a Government worker that is absorbed by the contractor. If businesses show that contractors save them money. Why would Government be any different? The difference is Government over pays for contractor services. The old $100,000 toilet seat comes to mind. If their were better oversight with Contracts to these outside contractors. the savings would be significant. Its not the ideal that’s bad. Its is how it is implemented.
#24 There’s a flip side to that = General Services Administration
You sell some kit to the government you have to prove you haven’t sold it to anyone else for a better price.
Want to sell something to a school at an educational discount? No problem, just go back to the GSA, fill in 27 forms proving that the school you sold it to was a school.
Next time you try and sell anything to government see this come up as a query, fill in same 27 forms again…. repeat ….
Decide not to sell to the government anymore, only to contractors working for the government.
Government workers are getting government health care plus full pension based on highest salary.
It’s why the post office is threatening closures.
Obama’s new economic adviser did a study that concluded government employees were paid substantially more. Then again he also did the absurd study that higher minimum wage reduces unemployment.
#25
“The assumption was that private has better resource management practices then the government does, in part due to a market disciplined environment privates live in.”
That assumption doesn’t hold up, which is the point of the article. Not surprising, really. Administration costs for gov operations tend to be very low compared to competing private industries( Medicare vs private insurance, for example).
You’ve got to remember that businesses go out of business all the time. There is no magical element to private organizations that automatically makes them more effective.
The big truth about conservatives from Reagan onwards is that they don’t give a damn about efficiency. It is entirely about attacking the legitimacy of any form of organization that isn’t a corporation.
In the case of government contractors it would make more sense, and be cheaper, to do skills tests on individual people and let them compete for positions vs the contracting labor pool. Instead it is often a multilevel deal, with a maze of contracting companies getting a cut even before the worker gets paid. It can end up costing a multiple of what a fed employee would get.
The GOP as hard-nosed cost cutters is a farce.
#29 chris Medicare administrative costs vs insurance companies is because insurance companies police fraud while MEDICARE PAYS OUT, giving you higher overhead on a lower base for the insurance company.